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Variable vs Absorption Costing Analysis

The document presents income statements for VIVO MANUFACTURERS and GAMBIT LIMITED using both variable and absorption costing methods for March 2024 and the year ended May 31, 2024, respectively. It details sales, costs, and profits, highlighting differences in net profit between the two costing methods. VIVO MANUFACTURERS reported net profits of R150,000 under variable costing and R165,000 under absorption costing, while GAMBIT LIMITED reported R2,065,000 and R2,105,000, respectively.

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17 views4 pages

Variable vs Absorption Costing Analysis

The document presents income statements for VIVO MANUFACTURERS and GAMBIT LIMITED using both variable and absorption costing methods for March 2024 and the year ended May 31, 2024, respectively. It details sales, costs, and profits, highlighting differences in net profit between the two costing methods. VIVO MANUFACTURERS reported net profits of R150,000 under variable costing and R165,000 under absorption costing, while GAMBIT LIMITED reported R2,065,000 and R2,105,000, respectively.

Uploaded by

bubenani
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Page 1 of 4

COST ACCOUNTING
UNIT 3: SOLUTIONS
QUESTION 1
1.1
1.1.1
VARIABLE COSTING
VIVO MANUFACTURERS
INCOME STATEMENT FOR MARCH 2024
R
Sales (2 500 X R300) 750 000
Less: Variable cost of sales (350 000)
Opening inventory 0
Variable manufacturing costs (R60 + R50 + R30 = R140 X 3 000) 420 000
Goods available for sale 420 000
Closing inventory (R140 X 500) (70 000)
Less: Variable selling cost (2 500 X R20) (50 000)
Marginal income 350 000
Less: Fixed costs (200 000)
Manufacturing costs 90 000
Selling costs 50 000
Administrative costs 60 000
Net profit 150 000
Page 2 of 4

1.1.2
ABSORPTION COSTING
VIVO MANUFACTURERS
INCOME STATEMENT FOR MARCH 2024
R
Sales (2 500 X R300) 750 000
Less: Manufacturing cost of sales (425 000)
Opening inventory 0
Variable manufacturing costs (R60 + R50 + R30 = R140 X 3 000) 420 000
Fixed manufacturing costs 90 000
Goods available for sale 510 000
Closing inventory (R510 000/3 000 = R170 X 500) (85 000)
Gross profit 325 000
Less: Selling and administrative expenses (160 000)
Fixed selling costs 50 000
Fixed administrative costs 60 000
Variable selling cost (2 500 X R20) 50 000
Net profit 165 000

1.2
Step 1 Variable costing net profit R150 000
Step 2 Fixed manufacturing costs in inventory (500 x R30) [90 000/3 000 = R30] 15 000
Step 3 Absorption costing net profit R165 000
Page 3 of 4

QUESTION 2
2.1
VARIABLE COSTING
GAMBIT LIMITED
INCOME STATEMENT FOR THE YEAR ENDED 31 MAY 2024
R
Sales (46 000 x R100) 4 600 000
Less: Variable cost of sales (1 150 000)
Opening inventory 0
Variable manufacturing costs (50 000 X R25) 1 250 000
Goods available for sale 1 250 000
Closing inventory (4 000 X R25) (100 000)
Less: Variable marketing and administration costs (46 000 X R10) (460 000)
Marginal income 2 990 000
Less: Fixed costs (925 000)
Manufacturing costs 500 000
Marketing and administration costs 425 000
Net profit 2 065 000
Page 4 of 4

2.2
ABSORPTION COSTING
GAMBIT LIMITED
INCOME STATEMENT FOR THE YEAR ENDED 31 MAY 2024
R
Sales 4 600 000
Less: Manufacturing cost of sales (1 610 000)
Opening inventory 0
Variable manufacturing costs 1 250 000
Fixed manufacturing costs 500 000
Goods available for sale 1 750 000
Closing inventory (4 000 X R35) (140 000)
Gross profit 2 990 000
Less: Selling and administrative expenses (885 000)
Fixed marketing and administration costs 425 000
Variable marketing and administration costs 460 000
Net profit 2 105 000

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